Barely a week goes by without another Australian building company going under and there is no sign of the carnage stopping any time soon.
The construction industry is a huge and vital sector, employing 1.14million Aussies.
But the Covid pandemic, conflict in Ukraine and our trade battle with China has made it increasingly difficult for building companies to stay afloat.
Victorian company Delco Building Group – which won a Master Builders Victoria Excellence in Housing Award – was the latest company to fail in Australia, appointing liquidators last Wednesday despite its strong reputation in the industry.
The week before, it was announced that two Western Australian companies, WA Housing Group and Individual Developments WA, had collapsed.
And Hallbury Homes filed for bankruptcy on January 4 owing about $7million to creditors.
Barely a week goes by without another Australian building company going under and there is no sign of the carnage stopping any time soon. Pictured is a building site in western Sydney
Some of the major Australian construction companies that have collapsed in recent times
Home Innovation Builders
Individual Developments WA
New Sensation Homes (logo pictured) is one of the many Australian construction firms to go under in recent times
WA Housing Group
Delco Building Group
Across Australia, hundreds of millions of dollars are owed by failed companies to subcontractors, tradies, clients and the tax office.
The construction industry isn’t in deep trouble due to a lack of customers – the problems go much deeper than that.
Some of the biggest names in Australian construction have become insolvent over the past year, including Probuild, Home Innovation Builders, Privium, Condev Construction and Pivotal Homes.
The rot started during the Covid-19 pandemic with many companies unable to find staff and facing problems sourcing and paying for materials due to a worldwide shortage.
Choked supply chains were made worse by the war in the Ukraine, along with increasing fuel prices and high wages.
This has led to the cost of materials rising by more than 20 per cent since the start of 2022, and some items went up by far more.
Pine more than doubled in price, with reinforcing steel, glass, plasterboard, fibre cement and other materials also going way up.
Such price rises meant many fixed contract building projects were no longer viable.
If an agreement is made, for example, for a $10million fixed contract and the price of materials suddenly shoots up again, then the potential profit dwindles or possibly becomes a loss.
Perth’s BGC Group recorded a loss of $41.6million last year, despite seeing its revenue rise by 20 per cent to $1billion.
It was put up for sale last April, but was taken off the market five months later due to ‘market conditions’.
The West Australian referred to this sort of economic outcome as a ‘profitless boom’.
Some companies are large enough to absorb a loss and keep going until better times, but most are not.
Western Australia has been particularly hard hit by a lack of labour as potential employees can often get more secure and better paid work in the mining industry.
‘No one anticipated the global supply chain issues,’ said John Gelavis of Master Builders WA.
‘No one anticipated the dramatic cost escalations.’
He said the construction industry has to move away from using a ‘lowest price wins’ contract situation.
‘This approach has resulted in a race to the bottom which has directly contributed to insolvencies within the industry,’ he said.
Constructions workers are seen at The Ribbon project at Darling Harbour in Sydney, Thursday, February 24, 2022. Probuild later confirmed its South African parent company, Wilson Bayly Holmes-Ovcon Ltd, had placed the company into administration
Mr Gelavis said other methods are operating successfully abroad where there the focus is on value outcomes.
‘These models encourage a partnership type approach and allow for the risk pricing to be a whole-of-project issue, and better managed, based on fact rather than guesswork,’ he said.
The Reserve Bank of Australia (RBA) also warned of dangers to the industry, saying ‘profit margins for existing fixed-price contracts have compressed substantially, and builders are now making losses on some contracts’.
Clough (logo pictured) is one of the great number of big Australian construction firms to collapse during the pandemic
The RBA said there are likely to be more construction company collapses as companies struggle with rising costs.
‘Overall, construction company insolvencies have increased sharply, exceeding their pre-pandemic levels and accounting for close to 30 per cent of all company insolvencies,’ the RBA said in its twice-yearly financial stability review.
‘More recently, the increase in interest rates has begun to raise debt-servicing costs for many firms, adding to financial pressures.’
It warned there could be wider implications to all the recent collapses, saying ‘there is potential for financial stress to spread to other businesses within the broader construction industry and to some households.
Some of the biggest names in Australian construction have become insolvent over the past year, including Probuild, Home Innovation Builders and Privium. Pictured is a female tradie
The Reserve Bank said the industry crisis was affected by ‘ongoing delays as a result of supply-chain disruptions, inclement weather and illness-related workers’ absences’.
These factor have contributed to ‘further increases in costs and have delayed when payment milestones are reached.
‘According to industry contacts in the Bank’s liaison program, construction delays for detached homes are currently around 12 weeks on average – and much longer than this in some instances,’ it said.
For the Australian building industry, that probably means there is a lot more pain and uncertainty to come.
How Australia’s construction industry crisis affected one family
By David Southwell for Daily Mail Australia
Landscaper Terry Condon contracted building firm Hallbury Homes to start work on the project in 2017, with the home in the outer southeast Melbourne suburb of Harkaway scheduled to be completed in 2020.
However major issues soon emerged and now the couple doubt if their half-built house will ever be finished.
Many construction companies have collapsed during the Covid-19 pandemic. Pictured is a stock image of a female engineer on a building site
Hallbury Homes filed for bankruptcy on January 4 owing about $7million to creditors and leaving a string of despairing customers like the Condons in the lurch.
‘This was my dream. I designed it with my wife and it’s been a nightmare,’ Mr Condon said.
‘I have gone out there and just sat for an hour thinking ‘what am I going to do?
‘My wife had a breakdown about a year ago over it.
‘She couldn’t go near the place, couldn’t drive past, got the shakes, had to get time off work.’
The appointed administrator Michael Caspaney of Menzies Advisory said Hallbury had been working on 42 sites with 52 projects when it collapsed with 20 staff affected.